Woolworths to pass on $40 wages hike while ARA warns smaller shops might struggle

Woolworths and Coles are keen to pass on the full wage increase to their workers but smaller retailers say the wages blowout could tip some businesses over the edge.

Hundreds of thousands of supermarket workers, from shelf stackers and checkout staff to warehouse employees, are set to gain a $40 a week pay rise, but smaller business owners and other retailers are worried the higher wages bill will dent their recovery and strangle growth.

The nation’s biggest private sector employer, supermarket giant Woolworths, will pass on the $40 pay rise to around 145,000 of its staff from July in keeping with the decision by the Fair Work Commission, as other retailers fret over the impact to their bottom lines from an expanded wages bill.

Major retailers that are covered by EBAs include McDonald’s, Myer, Ikea, Big W, Officeworks, Red Rooster, Reject Shop and Super Retail Group.

Woolworths, which employs around 180,000 people of which about 145,000 are covered by the decision, is also reviewing what it can for its salaried retail staff not covered by the new pay scale but have other EBAs or wages contracts.

“Following today’s Fair Work Commission decision, we will be passing on the annual pay

increases under the modern award to our hourly-paid Woolworths Supermarket, Metro and

BIG W retail workers from July and will review for our salaried retail team members,” a spokesman for Woolworths said on Wednesday.

“We have previously said we support an increase in team member wages that keeps pace

with underlying cost-of-living increases and are committed to doing the right thing.”

Woolworths, which employs about 180,000 people, is also reviewing what it can for its salaried retail staff who are not covered by the decision. Picture: NCA NewsWire / David Geraghty

Coles is in a slightly different situation than Woolworths as it does not have a current EBA for supermarket team members, and while it can pay a discretionary pay rise to the lowest paid workers, it does need to gain its own board approval to wave through the new pay rates as set out by the FWC decision.

A spokesman for Coles said it was committed to a fair day’s pay for its 130,000 workers and would be reviewing the commission’s decision.

“Coles is committed to continuing to provide fair remuneration for all our team members.

We will review the Fair Work Commission’s Annual Wage Review decision carefully and our team members will be the first to know of any changes to their pay arrangements.”

Meanwhile, the Australian Retailers Association, which represents the $360bn retail sector, said the decision of the Fair Work Commission to increase the minimum wage could tip some businesses over the edge as costs continue to rise.

The ARA, whose submission was for the minimum wage to increase by 3.2 per cent, said the 5.2 per cent wages boost was the highest in more than two decades, and comes during an incredibly challenging economic environment for Australia’s retailers.

“The cost of business is a pressing concern and comes as retailers deal with intense challenges,” said ARA chief executive Paul Zahra said.

“Acute supply chain issues, staff shortages and the rising cost of energy, fuel and materials is creating unprecedented financial pressure. Whilst the ARA supported a fair and balanced increase to the minimum wage, we fear the scale of this increase could tip some businesses over the edge.

“The Superannuation Rate Guarantee is also increasing from July 1, which is another cost that businesses have to factor in, on top of the inflationary pressures they’re currently experiencing.”

Australian Retailers Association chief Paul Zahra said many small businesses were feeling the pinch.

Mr Zahra said Australia’s economic recovery was uncertain, and with interest rates on the rise and families set to tighten their household budgets, consumer spending is likely to slow in the months ahead posing more challenges for discretionary retailers.

“Whilst the ARA supports an increase to the minimum wage for our front-line teams, the scale of this increase from the Fair Work Commission could send some businesses to the brink.

“We’ve consistently supported an increase to the minimum wage for front-line workers to help keep pace with the rising cost of the living. It’s a tough economic environment right now, with inflationary pressures taking hold and prices going up for essential items. This wage rise will certainly help people to make ends meet, however we need to acknowledge that many small businesses are also feeling the pinch as well.”

Barrenjoey analyst Tom Kierath said the decision by the Fair Work Commission to declare a 5.2 per cent minimum wage increase - reflecting a 4.6 per cent award increase - effective from July 1 next year was around 1 per cent higher than retailer expectations.

The ripple effect flowing through retailer businesses and led by the higher wages bill will mean these companies will need to step up productivity and cost savings, balancing the large proportion wages makes up per dollar of sales.

“We think these (wage) increases will form the basis for wage increases at retailers with EBAs, such as Woolworths, Coles, Bunnings, Dan Murphy’s, Kmart,” he said.

“We estimate wages represent 8 to 30 per cent of sales for the companies across our coverage, which means the 4.6 per cent increase equates to between 4 to 19 per cent of annual EBIT, all else equal.

“Given the relatively high wage increase, we think pricing power and execution on cost-out initiatives will be especially important across 2023.”